Procter & Gamble CEO A. G. Lafley: A. G. Lafley On Developing Markets

I spent eight years in Japan, three years with the Navy and five years with P&G. For a lot of our household and personal care products, the Japanese are world class in terms of innovation and technology. The consumers are demanding and discriminating. Some of the competition is the best in the world. If you can make it in Japan, you can succeed across the developing world.

Q. Some CEOs say Japan is aging, so they can ignore it. What do you think?

For us, Japan is an important market. It’s large. We’ve been growing our Japanese business double-digits for at least three years in a row despite an economy that’s growing very modestly. We’ve entered some new businesses, some new categories and segments, but we’ve done it primarily by building our market shares. We find the good product ideas are reapplicable, certainly to the U.S. and Western Europe and beyond to places like Korea.

Q. What has P&G taken out of Japan and applied elsewhere?

The Mister Clean Magic Eraser. It’s a very simple, little white clear pad that takes virtually any mark or stain off a wall or other hard surface. Some of our skin care products were inspired by products in Japan, as well as some of our baby care and feminine care products. One of the technologies we use on the Swiffer quick cleaning system is the curly fibers we license from Unicharm, which is our biggest competitor in baby diapers, feminine care and adult incontinence.

Q. From Japan, you then went after China?

We put a few pioneers on the ground and we began immediately to recruit local talent and create a local organization, and begin to understand the consumer in that marketplace.

Our team went out into homes and into the marketplace and to the stores and talked to Chinese women about their families, their lives, their homes, their apartments, and how and where household products and personal care products fit into their lives. We asked how we could improve their lives with better products. We had the foresight to understand that if we didn’t understand the consumer, we weren’t going to get to first base.

The second thing we did is to try to understand the distribution system. How does something that’s manufactured get to the marketplace where it can be purchased? And oh, by the way, where does she shop? How often does she shop in small stores and how often does she shop in open markets?

The third thing is that we went in with partners. In China, it was Li Ka-Shing of Hong Kong and it was a very small manufacturer in Guangzhou. That helped us because they knew the government and they knew the way things work in China. They could get us connected to the people we had to get connected to, to buy or lease the land, build the factory and get going.

Then our approach was always, “Let’s make a little. Let’s sell a little. Let’s learn a lot.” If we’re learning as fast and if we’re learning as much as we’re investing in people and assets, we’re going to be okay. In Japan, it took us nearly 14 years to get profitable. In China, it was about six years.

Q. You had a much quicker trajectory.

Yes, it was quicker and the losses were a lot smaller because we made a little and sold a little and tried to match the learning to the investment in people and assets.

Q. What did you apply from Japan to China?

Part of our problem in Japan is that we thought we could essentially bring in a product designed in Europe and the U.S., and basically repackage it and sell it in Japan. We learned that, no, we could bring in product technology from Europe and the U.S., but we had to design, engineer and formulate the product for Japanese consumers to fit into the Japanese culture. We skinned our knees. As a result, we made fewer mistakes in China. We had an attitude that failure is learning. If we can fail early, fast and cheap and learn from it, then it’s okay.

Q. You feel that expanding in emerging markets is more than just a business proposition?

President Clinton talked about “constructive engagement.” I always felt that was the right approach for the U.S., not just the government, but as well as U.S. multinational companies to have constructive engagement with the economies, governments and people of emerging markets.

I am an optimist and maybe a little bit idealistic, but my view is that if we can bring everyday products that really make life a little bit better, then we can do our small part to improve the lives of these consumers. We bring stimulus in the form of economic activity. We create a network of suppliers and customers.

It’s not just our sales and investments that matter. We bring our supply base and we develop a Chinese supply base. So the package suppliers, the raw material suppliers, the logistics infrastructure, the services infrastructure-we’re drawing on all that as we grow.

If there were more multinationals invested in the Arabian peninsula and other parts of the Middle East, making everyday life a little bit better with their products and services, employing a lot of people, and educating people, it would make a difference.

In China, through our donations, I think we’ve built more than 100 schools in small towns and rural areas. We do a lot of training programs that are transferable to other parts of life. If people are educated and have rising expectations and we can begin to meet some of those aspirations, by enabling women to enter the work force, then I think it makes a difference.

Q. How far have U.S. companies gone in penetrating developing markets? Are they 20 percent of the way there or 50 percent?

We still have tremendous upside even though we’ve been in China since 1988. We’re still only serving predominantly urban consumers and near urban consumers, and we’re serving upper income consumers. We’re serving 300,000 households in China at the max.

Q. That’s just a drop in the bucket.

Right. We’ve penetrated 2,000 cities and 11,000 towns. But there are still distribution issues and there are still affordability issues. There are still lots of opportunities to make products that better meet their needs. My gut is that there is still a tremendous opportunity in emerging markets.